Despite a new lawsuit filed against the PSLF servicer, borrowers should still pursue this beneficial program.
Next month marks the first time federal student loan borrowers could be eligible to have the balance of their loans forgiven under the Public Service Loan Forgiveness program. This should be a positive time for those who write about student loans, but recent lawsuits and statistics surrounding the forgiveness program mean the celebrations are going to have to wait a while longer.
Just last week, Massachusetts Attorney General Maura Healey filed suit against FedLoan Servicing, the servicer that the Department of Education contracted to manage the public service loan forgiveness program and the borrowers pursuing it. The suit alleges, in part, that the servicer is taking too long to process borrowers’ income-driven repayment plan applications and renewals and that this is causing these borrowers to lose valuable months that would count toward the 120 payments needed to receive forgiveness.
The suit specifically calls out when the Revised Pay As You Earn plan, an eligible income-driven repayment option for those pursuing PSLF, was first made available in winter 2015 to eligible federal loan borrowers. The attorney general claims that FedLoans, in particular, took months to process these applications, delaying when those eligible for public service loan forgiveness could receive relief under the program.
The suit also alleges that when the servicer was experiencing delays in processing these repayment options, it placed the borrower in forbearance, which postpones the payments altogether. Since payments made during forbearance don’t count toward the required PSLF payments, but those made by eligible borrowers under an income-driven plan can, the attorney general claims these delays postponed borrowers’ opportunity for loan forgiveness.
Note: Regulations allow for servicers to use forbearances in such situations, especially if the borrower does not submit his or her income-driven plan documents until after the deadline that the servicer established.
Regulations require the loan servicer to notify borrowers about the deadline for submitting the required recertification documents for annually renewing an income-driven plan. This deadline is no more than 35 days from the borrower’s annual renewal date, and the servicer is required to notify the borrower 60 to 90 days before the deadline.
This should give borrowers plenty of time to submit their documentation and the servicer plenty of time to process it. To try and prevent servicing and possible forgiveness delays, borrowers should submit renewal paperwork by the deadline.
Beyond this suit, the Department of Education recently shared current enrollment statistics for the public service loan forgiveness program. Despite an estimated 42 million federal student loan borrowers, only 139 have fulfilled the eligibility criteria needed to have their loans forgiven at any time over the next two years.
We suspect, and hope, that many more borrowers have been pursuing PSLF correctly up to this point and have just neglected to submit their employment certification forms. Although they are not required to submit those forms annually, borrowers are required to prove all 120 months of eligible employment, which is why the Student Loan Ranger strongly recommends submitting these forms annually.
But even if borrowers seeking forgiveness work for an eligible employer, they may still face obstacles. According to Department of Education data, although approximately 600,000 borrowers have submitted the required employment certification forms at least once, almost half of those have yet to make what would be considered an eligible payment under the forgiveness program. These statistics make the Student Loan Ranger fear that many eligible borrowers are either unaware of the program or are unclear on what they are required to do to pursue it.